Definition

The term non-disclosure agreement is used to describe a contract between two parties that outlines how confidential materials or information may be shared with others. While non-disclosure agreements oftentimes involve non-employees, companies will sometimes ask employees to sign these agreements when they are first hired.

Explanation

Also known as a confidentiality agreement (CA), a non-disclosure agreement (NDA) is a legal contract between two or more parties that outlines how proprietary information may be shared. Confidentiality agreements usually involve employees and their employers, while non-disclosure agreements normally involve a corporation and non-employees.

The purpose of these agreements is to protect the company's proprietary, non-public information from disclosure to other parties. NDAs are usually signed when one party has a need to share this information with another party for a specific purpose. For example, one company may hire another to help them improve a process that involves trade secrets.

The non-disclosure agreement will typically address a number of items:

Parties: includes those parties covered by the agreement, which can be representatives of a corporation, non-employees, as well as employees.

Identification: including the confidential information that may be shared or generated during the agreement. This may also include labeling of materials with terms such as proprietary, confidential, or restricted.

Disclosure Period: the term over which disclosure is prohibited, typically used when certain confidential information will eventually be publically disclosed.

Exchange of Information: includes how confidential information may be transmitted or reproduced. For example, the NDA may prohibit emailing of documents unless the information is encrypted or password protected.

Exclusions: identifies information that is not specifically covered by the agreement.

Protection of Information: outlines how confidential materials may be stored. For example, physical documents may need to be kept in locked cabinets and computer hard drives may need to be encrypted.